January 4, 2010
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News: The Consequences of Debit
Banks have been on a mission to convince credit card customers that they can reap in the same benefits with their debit card. But what is really in store for them if they do use their debit card and instead of credit? The Chicago Tribune has a few suggestions for you to consider when trying to decide whether to use debit or credit.
• Theft liability: Most lenders cap credit card theft liability at $50 and cardholders typically have at least 60 days to report fraud. The cap is due in part because Visa and MasterCard assume liability for any fraudulent transactions over that amount. However, debit cards do not come with the same protection. Furthermore, any protection that is given is typically only available if the consumer reports the fraud within a few days. If you use your debit card and enter credit, you will receive the same benefits of using your credit card.
• Credit cards also come with greater protection when consumers file disputes. Lenders don't require cardholders to pay the disputed charge while they continue to investigate the transaction. Debit cards on the other hand, are not reimbursed until the bank has finished its investigation.
• Credit card spending has a significant impact on your credit score, whereas debit card use has no baring whatsoever. Lenders report credit card payments to credit reporting bureaus and make up approximately 35 percent of your credit score. Lenders determine the interest rate they offer you by what your credit score is.
• Although banks are very convincing in saying using your debit card will give you inviting rewards, credit card rewards programs are typically more beneficial. Consumers generally have to spend $4 to earn one point with debit card spending, but only $1 with a credit card.
It would appear that credit cards offer a great deal more when considering liability, rewards, and benefits; however if your 2010 New Year's resolution is to reduce card spending, it would benefit you more to say debit rather than credit.